Financial institutions general regulatory news, 27 July 2020

FIG Bulletin

Recent regulatory developments of interest to all financial institutions. Includes updates relating to Brexit, COVID-19, HM Treasury's consultations on financial promotion approvals and cryptoasset promotions, and more.


Brexit: House of Lords EU Services Sub-Committee seeks clarity on future relationship in financial services

The House of Lords EU Services Sub-Committee has published the letter it has sent to John Glen, Economic Secretary and City Minister, on the UK-EU negotiations in financial services and UK financial services after Brexit.

Mr Glen appeared before the committee on 2 July 2020 to give evidence relating to its inquiry on financial services after Brexit. The purpose of the letter is to enable the committee to follow up on some of the points that were raised during the discussion.

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Brexit: Cooperation and information-exchange MoUs between FCA and ESMA

The UK Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) have confirmed that the memoranda of understanding (MoUs) on cooperation and exchange of information agreed in 2019 between the FCA and ESMA and EU securities regulators will come into effect at the end of the Brexit transition period, currently set to expire on 31 December 2020.

Brexit: FCA information on Electronic Commerce Directive exclusion

The FCA has published a new webpage on changes relating to the Electronic Commerce Directive (ECD) at the end of the Brexit transition period. The ECD provides an exclusion from host state regulation for e-commerce activities provided from one European Economic Area (EEA) state to a person in another EEA state. The exclusion is on the basis that the host state regulator can rely on the regulation of the firm's home state because both are within the same EEA regulatory framework.

In the UK, the relevant provisions that transpose this exclusion are in article 72A of the Regulated Activites Order 2001 (RAO), article 20B of the Financial Promotion Order 2005 (FPO), and certain provisions of the ECD (Financial Services and Markets) Regulations 2002. Following the end of the transition period, the ECD exclusion will fall away.

The FCA advises that UK firms will need to contact local regulators in EEA states to check if other ways to provide their services are available, and then decide on their approach to servicing existing customers in accordance with local law and local regulators' expectations. In all circumstances, the FCA expects firms to provide timely, fair, clear and not-misleading information to their customers.

The FCA advises EEA-based firms to consider whether they are affected by this change. If they are, they should address any impacts to their business models, their marketing, or both, before the end of the transition period. EEA-based firms wishing to continue their regulated e-commerce business in the UK need to consider whether they require UK authorisation and, if so, should consider the timing and other implications of this.

EEA-based firms wishing to wind down their e-commerce business that falls within the exclusion (and that was entered into before the end of the transition period), will be able to do so under the provisions in Part 4 of the Electronic Commerce and Solvency 2 (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/1361).

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UK cross-border trade in services with Australia: City of London Corporation report

The City of London Corporation has published a report on UK cross-border trade in services with Australia. The report identifies policy areas where joint focus, either through free trade agreement (FTA) negotiations or other trade tools such as mutual recognition agreements and regulatory dialogue, could address some common goals.

UK financial promotion approvals: HM Treasury consultation

HM Treasury has published a consultation paper on proposed reforms to the regulatory framework for the approval of financial promotions under the Financial Services and Markets Act 2000 (FSMA).

The government proposes to establish a regulatory gateway that authorised firms must pass through before they are able to approve the financial promotions of unauthorised firms. Any firm wishing to approve unauthorised firms' financial promotions would first need to obtain the FCA's consent.

It is seeking stakeholders' views on two policy options. The first would restrict the approval of unauthorised firms' financial promotions by imposing requirements on authorised firms. The second would specify the approval of financial promotions communicated by unauthorised persons as a regulated activity under FSMA. Both options would result in amendments needing to be made to section 21 and other sections of FSMA.

The deadline for responses to the consultation is 25 October 2020.

Cryproasset financial promotions: HM Treasury consultation

HM Treasury has published a consultation paper on cryptoasset promotions. It proposes to expand the perimeter of the financial promotion regime to enhance consumer protection while the government continues to consider its approach to the broader challenges of cryptoasset regulation. To bring the relevant activities into scope, the government proposes to amend the FPO to include certain unregulated cryptoassets in the list of controlled investments and amend a number of the current controlled activities.

The government considers that applying the financial promotion regime to too wide a range of cryptoasset activity could stifle innovation without a proportionate benefit to consumer protection. Accordingly, the proposed definition of "qualifying cryptoassets" (that is, the unregulated cryptoassets to be covered by the FPO as controlled investments) includes only those cryptoassets that are both fungible and transferable.

The government has identified the most relevant controlled activities and intends to amend them to incorporate activities in relation to the buying, selling, subscribing for or underwriting of qualifying cryptoassets. In the government's view, the financial promotion restriction exemptions for qualifying cryptoassets should generally be consistent with the approach taken to exemptions for other controlled investments. However, the government proposes to add a new FPO exemption to ensure that vendors merely offering to accept cryptoassets in exchange for goods or services, and buyers merely offering cryptoassets to pay for goods or services, in the same manner as they would accept pound sterling payments, are not captured.

The consultation closes on 25 October 2020. The government does not propose to introduce a transitional period before the proposed FPO amendments come into force.

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FCA's cancellation of authorisation process: HM Treasury policy statement

HM Treasury has published a policy statement about changes it intends to make to the FCA's process for cancelling firms' authorisations. It explains that the current process set out in FSMA is no longer sufficient to allow the FCA to quickly remove a firm's authorisation where it suspects the firm is no longer carrying out authorised activity and reflect that in the Financial Services Register. This poses significant risks to consumers who rely on the Register being up to date and accurate when making decisions about financial products and services.

In view of this, the government intends to provide an additional process through which the FCA can cancel the authorisation of firms it suspects may no longer be carrying out FCA-regulated activities. This new process will sit alongside the existing cancellation process. The FCA will be entitled to start the new process in a range of situations, including when the firm has failed to pay its fees or file returns. Further details are in the paper.

The new process will allow the FCA to cancel an authorisation it has given. It will apply only to FCA solo-regulated firms; dual regulated firms are not in scope.

The government states that it intends to take forward the measure "when Parliamentary time allows". It expects that the FCA will set out its detailed proposals on how it will implement the changes following Royal Assent.

A related webpage notes that, while this is not a formal consultation, the government would welcome views on the proposed changes.

Complaints against financial services regulators: BoE, FCA and PRA consultation

The Bank of England (BoE), FCA and UK Prudential Regulation Authority (PRA) have published a joint consultation paper on complaints against the regulators (FCA CP20/11 / PRA CP8/20).

The regulators set out their proposals for:

  • a revised scheme that is more user-friendly, using plain language to make it more accessible to consumers and small businesses (as well as others); and
  • a more detailed description of the regulators' approach to ex-gratia compensatory payments, to help complainants understand what they can and cannot expect from the scheme.

The consultation closes on 14 September 2020. The regulators aim to bring the revised scheme into force as soon as reasonably practicable. They propose that all complaints received after the revised scheme comes into force will be handled by the regulators under the revised scheme.

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UK-Singapore financial dialogue: Joint communiqué

HM Treasury has published a joint communiqué following the fifth UK-Singapore financial dialogue held virtually and attended by senior officials from HM Treasury, the BoE, the FCA and the Monetary Authority of Singapore (MAS). At the dialogue, the parties exchanged views on domestic and international financial market developments and discussed a broad range of issues, including green finance, cyber security, cross-border data flows, pandemic risk financing and insurance, and regulatory cooperation.

The next financial dialogue is expected to take place in London in 2021.

HM Treasury launches independent FinTech Strategic Review

HM Treasury has launched an independent FinTech Strategic Review, which will establish priority areas for industry, policy makers, and regulators to explore to support the ongoing success of the UK FinTech sector. It has also published the terms of reference for the Review, which will be led by Ron Kalifa OBE. These explain that its objectives are to ensure UK FinTech has the resources to grow and succeed, to create the conditions for the continued widespread adoption of FinTech solutions to benefit business and individuals, and to maintain and advance the UK's global reputation for innovation.

The Review will aim to complete and report back to HM Treasury at the start of 2021. HM Treasury will then publish a response.

COVID-19: FCA proposes extending guidance for insurance and premium finance firms on customers in temporary financial difficulty

On 24 July 2020, the FCA published a statement announcing its proposals to extend a series of temporary measures to help customers who hold insurance and premium finance products that may be in temporary financial difficulties in light of COVID-19.

In the draft updated guidance, the FCA proposes to extend the guidance for a further three months, until 31 October 2020, although certain parts of the guidance will continue beyond this date. The FCA is also proposing to set out more clearly its expectations on how firms should treat customers still in financial difficulty at the end of a payment deferral.

In particular, the FCA is seeking views on:

  • whether aspects of the guidance could be retained to apply on a permanent basis; and
  • the FCA's product value and COVID-19 guidance for insurance firms, which was published in June 2020. This is to help inform the review the FCA proposes to undertake later on in 2020.

The FCA has also published the draft COVID-19 Premium Finance (No 2) Instrument 2020, which proposes consequential amendments to the Consumer Credit sourcebook (CONC) to reflect the draft guidance.

Firms are reminded to continue to consider what options they can offer customers. Where payment deferral is not in the best interest, measures that could be taken may include premium reductions due to changes in risk profile or offering an alternative product that would better meet the customer's needs. Another option is waiving fees associated with altering cover. Where amendments to the insurance cover do not help alleviate the customer's temporary payment difficulties, firms will be expected to grant a payment deferral of between one and three months, unless it is obviously not in the customer's interest to do so.

Comments can be made on the draft guidance until 28 July 2020. If confirmed, the updated guidance will come into force by 18 August 2020.

The original measures came into force in May 2020 and the FCA committed to reviewing them after three months.

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Remuneration: FCA review of firms' policies and practices

The FCA has published a letter, sent to firms' remuneration committee chairs, setting out its findings and observations from the 2019/20 remuneration round, and explaining how it plans to assess firms' remuneration policies and practices throughout 2020/21.

Intergenerational differences: FCA feedback statement

The FCA has published a feedback statement, FS20/12, on intergenerational differences. FS20/12 summarises the responses the FCA received to its May 2019 discussion paper on intergenerational differences, DP19/2.

The FCA will apply its findings in two ways. First, it recently set four external priorities for its work over the next one to three years in its 2020/21 business plan. It will respond to its intergenerational project findings in the course of delivering these priorities. Second, it will use future consumer and economic research to re-evaluate the financial circumstances and needs of different generations over time.

The FCA does not believe it would be appropriate or proportionate to pursue bespoke remedies, including rule changes, in response to its findings.

FCA warns of fake Financial Services Register website

The FCA has published a statement announcing that it is aware that there has been an attempt to reproduce its Financial Services Register on a non-FCA website. The FCA states that it is working to get the page taken down and it has alerted members of the public through its website and social media channels. The unofficial domain is

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Regulatory sandbox: FCA announces successful applicants to sixth cohort

The FCA has published a press release providing details of the 22 firms that were successful in applying to begin testing in the sixth cohort of the regulatory sandbox.

BoE's Enforcement Decision Making Committee: first annual report

The BoE has published the first annual report of its Enforcement Decision Making Committee (EDMC). It covers the period from the EDMC's establishment in August 2018 to the end of February 2020.

The EDMC's role is to decide contested enforcement cases and it functions across all regulatory areas where the BoE has enforcement powers, including prudential regulation (by the PRA), financial market infrastructure and resolution. The report gives details of the cases dealt with by the EDMC so far.

In addition, the report explains that the EDMC's remit was expanded in October 2019 to include reviewing the PRA's process for settled enforcement cases. It states that the EDMC is currently considering options for delivering this review, which will assess the fairness and effectiveness of the PRA's settlement processes. It notes that this will not be a mechanism to re-open settled cases. It intends the review to take place at appropriate intervals, once there are enough cases to enable representative thematic conclusions to be drawn and to enable the anonymisation of those providing comments.

Economic crime levy: HM treasury consultation

HM Treasury is consulting on the economic crime levy that will fund government action to tackle money laundering and help deliver reforms committed to by the government in the 2019 economic crime plan. The levy aims to raise approximately £100 million per year from entities regulated for anti-money laundering (AML) purposes and support reforms geared towards the sustainable resourcing of economic crime as outlined in the 2019 economic crime plan. The consultation invites views on the design principles of the levy, and how it could operate in practice to ensure that is proportionate and effective.

In particular, the consultation seeks views on what the levy will pay for, how it should be calculated and distributed across the AML regulated sector and how the levy should be collected. The consultation also includes a call for evidence on current levels of private sector investment on counter-fraud measures as well as gauging private sector views on contributions towards funding the fraud response.

The consultation closes on 14 October 2020.

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PRIIPs Delegated Regulation: Joint Committee of ESAs review

The Joint Committee of the European Supervisory Authorities (ESAs) has published a letter to the European Commission setting out the outcome of its review of proposed amendments to Commission Delegated Regulation 2017/653 on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (PRIIPs Delegated Regulation).

Financial stability monitoring: FSB stocktake on including climate risks

The Financial Stability Board (FSB) has published a stocktake of financial authorities' experience in including physical and transition climate risks as part of their financial stability monitoring.

The stocktake draws on information provided by FSB member national authorities, international bodies and a workshop with the private sector. The FSB found that around two-thirds of survey respondents consider, or are planning to consider, climate-related risks as part of their financial stability monitoring. Most focus on the implications of changes in asset prices and credit quality. A minority of authorities also consider the implications for underwriting, legal, liability and operational risks.

Authorities also consider the implications of these risks for financial institutions. Consideration of climate-related credit and market risks faced by banks and insurers appears more advanced than that of other risks, or of risks faced by other types of financial institutions.

In some jurisdictions, climate-related risks are being integrated into micro-prudential supervision of banks and insurance firms, although this work is generally at an early stage.

The FSB will carry out further work by October 2020 to assess the channels through which physical and transition risks could impact the financial system and how they might interact.

BigTech: International Banking Federation report

The International Banking Federation (IBFed) has published a report, "Big banks, bigger techs?", which identifies actions for policy makers to regulate the next evolution of the financial markets.

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Authored by Yvonne Clapham


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